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Informality and international business cycles

Carlos Yepez

Journal of International Financial Markets, Institutions and Money, 2019, vol. 62, issue C, 252-263

Abstract: We examine the role of informal production in the international transmission of shocks. Our novel contribution is to show that informal production has an important impact on the observed cyclical properties of consumption, employment, and trade, which is effected through expenditure switching and labor re-allocation in response to productivity shocks. As such, the presence of an informal sector helps rationalize distinct empirical regularities that differentiate emerging from advanced economies. Our quantitative results highlight key structural aspects of the informal sector that are informative for the conduct of stabilization and labor market policy in emerging economies. The model is quantitatively assessed for the case of México vis-à-vis the U.S.

Keywords: International finance; Business cycles; Open economy; Informality; Emerging market economies (search for similar items in EconPapers)
JEL-codes: E21 E24 E32 F40 F41 F44 J21 O11 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1016/j.intfin.2019.08.001

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